Bookshelf Update: Lessons from the Greatest Trader You’ve Never Heard Of

Unsung legend Peter Brandt compiled his top lessons from over 30 years in the Markets.

I just had to post these wonderful lessons from a market veteran. Head over to my Bookshelf for the complete document. Hattip to Josh Brown, who rolled out the red carpet to welcome the Greatest Trader You’ve Never Heard Of, Peter Brandt, to the blogosphere:

Peter Brandt may be the greatest trader you’ve never heard of. We consider him a legend thanks to his stunning performance–a thirty-year track record (audited) of 41.6% compound returns.

Just as impressive is the manner in which those returns were achieved. Over a multi-decade span, Peter’s best year topped 600 percent… and yet his worst losing year (of which there were only four) was a single-digit decline of less than 6 percent!

Mr. Brandt’s latest endeavor is Factor Trading Co., originally a proprietary shop that now also manages institutional money. He’s blogging regularly throughout the trading day too. From within Factor Trading Co’s Trading Plan, I found this gem. These are the notches on Mr. Brandt’s bedpost:

Trading Lessons Learned by Factor During the Years

Except for a few tremendously gifted traders (not including me), day trading is a loser’s game.

Trades decided upon at a moment in time during active market hours will contribute negatively to my net bottom line.

It is better to miss a trade all together than to be obsessed about being in a certain market.

I do not need to recover the losses from one market in the same market. A given market owes me nothing.

I need to maintain little or no tolerance with breakouts that are not decisive or that put a trade into the red; Agonizing patience with trades that remain in the black gives [sic] a trade plenty of leeway to reach its target.

My focus needs to remain the search for the 20 or so best examples of classical charting principles each year, with the goal of successfully trading the majority of these market situations.

The trading plan will be profitable in about 35% of trading events over an extended period of time. However, over shorter periods of time the plan may be profitable in as few as 15% of trading events.

Expect the bottom line over an extended time frame to be represented by only 10% of all trades. The other 90% of trades will be washes.

There will be losing trades, losing weeks, losing months, and very unfortunately, even losing years.

Every year will experience a drawdown of 10% of assets. Many years will encounter a drawdown of 15% of assets.

Most chart patterns, especially those of shorter duration (less than 8 to 10 weeks), completely fail or morph into part of a larger chart construction.

Being profitable over an extended period of time is far more important than being right on the next trade or series of trading events – consistently following a sound trading plan is not measured by the results of any given trade or series of trades.

An emphasis on sound (in fact, ruthless) risk management protocols with the faith that preserving trading assets is a prerequisite to be positioned for long-term profitability. A trader’s pile of chips needs to be protected as a first priority.

Severe drawdowns are very difficult to overcome. A trader should never be more than one to three fully leveraged good trades away from new capital highs.

I need to retain an intentional alertness for a few trading events per year (two or three) that are characterized by multiple technical confirmations (the stars becoming aligned) and a low risk entry point where extraordinary leverage can be employed with only marginally greater risk.

A difficult but [sic] necessary component for success is an extreme amount of patience, waiting and waiting for a pattern to become fully mature – and then the discipline to pull the trigger with an appropriate amount of leverage.

A sum of profits or certain rate-of-return is not a legitimate goal in trading. Rather, the goal must be to properly execute clearly understood strategic and tactic maneuvers. Control the controllable, let go of the uncontrollable!

Failure to achieve the above will happen. A trader needs to have the ability for immediate self-forgiveness when getting off the script, realizing that a focus on past/recent mistakes can lead to a vicious cycle.